What is ‘War Risk’
1. The possibility that an investment will lose value because of a major, violent political upheaval. War generates uncertainty in the financial markets and causes many investors to panic and sell, which leads to a decline in prices.
2. The possibility that an individual or company will experience a major financial loss related to the destruction of property caused by a major, violent, political upheaval.
Explaining ‘War Risk’
1. War risk falls under the broader category of political risk, which is one of several types of risk investors face. Others, to name just a few, include liquidity risk (the possibility of being unable to sell), currency risk (the possibility of an investment losing money because of a change in exchange rates) and capital risk (the possibility of losing the principal invested).
2. Terrorism, insurrection, military coup and other war events can create significant losses for personal and business property owners. Standard insurance policies do not always cover acts of war; in some cases, it may be necessary to purchase separate war risk insurance.
Further Reading
- Financial crises and risk premia – academic.oup.com [PDF]
- Antecedents of war: the geopolitics of low oil prices and decelerating financial liquidity – www.tandfonline.com [PDF]
- Living in the world risk society: A Hobhouse Memorial Public Lecture given on Wednesday 15 February 2006 at the London School of Economics – www.tandfonline.com [PDF]
- The economics of post-September 11 financial aid to airlines – heinonline.org [PDF]
- Beyond greed and grievance: feasibility and civil war – academic.oup.com [PDF]
- Firm financial condition and airline price wars – www.jstor.org [PDF]
- Political news and stock prices: evidence from Trump's trade war – www.tandfonline.com [PDF]
- Understanding civil war: A new agenda – journals.sagepub.com [PDF]
